Symantec 2001 Annual Report Download - page 24

Sales and Marketing Expenses Sales and marketing expenses as a
percentage of net revenues remained flat at 41% for fiscal 2001 and
2000 and was 48% for fiscal 1999. Sales and marketing expenses were
approximately $350 million, $307 million and $286 million in fiscal
2001, 2000 and 1999, respectively. The absolute dollar increase in sales
and marketing expenses in fiscal 2001 as compared to fiscal 2000 was
primarily related to Enterprise Security segment hiring and increase in
salaries, commissions and other performance based compensation and
AXENT related sales and marketing expences which were included
from the date of acquisition. The absolute dollar increase in sales and
marketing dollars for fiscal 2000 over fiscal 1999 was also due to
increased headcount, related salaries, commission and other perform-
ance based compensation.
General and Administrative Expenses General and administrative
expenses as a percentage of net revenues were 5% in fiscal 2001 and
6% in fiscal 2000 and 1999. General and administrative expenses were
approximately $45 million, $42 million and $36 million in fiscal 2001,
2000 and 1999, respectively. The absolute dollar increase in general and
administrative expenses in fiscal 2001 as compared to fiscal 2000 was
primarily due to an increase in salary related expenses and other
general administrative expenses, offset by a reduction in bad debt
expenses. General and administrative expenses in absolute dollars
increased in fiscal 2000 as compared to fiscal 1999, primarily due to
increases in salaries and benefits, legal fees and bad debt expenses, off-
set by reductions in certain consulting expenses incurred in fiscal 1999.
Amortization of Goodwill Amortization of goodwill increased 299%
to approximately $71 million in fiscal 2001 from $18 million in fiscal
2000. The increase was related to amortization of goodwill associated
with the acquisition of AXENT in fiscal 2001. Amortization of good-
will increased 190% to approximately $18 million in fiscal 2000 from
$6 million in fiscal 1999. The increase was related to the amortization
of goodwill associated with the acquisitions of URLabs, L-3 Network
Security’s operations and 20/20 Software in fiscal 2000.
Acquired In-Process Research and Development Expenses In fiscal
2001, we acquired AXENT. In fiscal 2000, we acquired URLabs and L-3
Network Security’s operations. In fiscal 1999, we acquired IBM’s and
Intel’s anti-virus businesses, Binary Research’s operations and Quarterdeck.
We wrote off approximately $22 million, $4 million and $27 million of
acquired in-process research and development associated with these
acquisitions in fiscal 2001, 2000 and 1999, respectively. These write-offs
were necessary because the acquired technologies had not yet reached
technological feasibility and there were no alternative uses.
The efforts required to develop the acquired in-process technology
principally relate to the completion of all planning, design, develop-
ment and testing activities that are necessary to establish that the
product or service can be produced to meet its design specifications
including features, functions and performance. We expect the acquired
in-process technology to be developed into commercially feasible
products. However, there are no assurances that this will occur. If we
fail to complete these products in their entirety, or in a timely manner,
we may not continue to attract new users, we may be unable to retain
our existing users and the value of the other intangible assets may
become impaired.
We determined the fair value of the acquired in-process technology for
each of the purchases by estimating the projected cash flows related to
these projects, including the cost to complete the acquired in-process
technologies and future revenues to be earned upon commercializa-
tion of the products. We discounted the resulting cash flows back to
their net present values. We based the net cash flows from such proj-
ects on our analysis of the respective markets and estimates of
revenues and operating profits related to these projects.
A valuation specialist used our estimates to establish the amount of
acquired in-process research and development to be written off for
these acquisitions in fiscal 2001, 2000 and 1999.As a result, we wrote
off $22 million in connection with our acquisition of AXENT in fiscal
2001 using the following analysis:
AXENT This discussion contains forward-looking statements of
certain aspects of our expected future operating results from the
operations of AXENT. Actual results may differ from the estimates
expressly or implicitly referred to by these forward-looking statements.
We are using the acquired in-process research and development
associated with AXENT to create additional opportunities in Internet
security, primarily in the assessment and management of securing
networks for enterprises.
The in-process technology acquired in the AXENT acquisition
consisted primarily of research and development related to the next
generation of ESM, Intruder Alert, Raptor Firewall,Webthority and
other projects. AXENT’s research and development was focused on
providing more robust features in its development of these next
generation products.
We assumed that revenue attributable to AXENT’s in-process
technologies would be approximately $43 million in the first year and
increase in the second and third years of the five-year projection
period at annual rates of 59% and 2%, respectively, and then decrease
at rates of 16% and 37% over the remaining two years. We projected
annual revenues to range between approximately $37 million and $70
million over the projected period. These projections were based on:
•aggregate growth rates for the business as a whole;
•individual product revenues;
•anticipated product development cycles; and
•the life of the underlying technology.
We estimated selling, general and administrative expenses for the in-
process technology to be 45% of revenue in each year of the five-year
projection period.
We projected operating results before acquisition related amortization
charges to range from an $8 million profit during the first year to an
$18 million profit during each of the second and third years. We pro-
jected that the operating profits would then decrease 16% in the fourth
year and 38% in the fifth year, resulting in profits of approximately $15
million and $9 million, respectively.
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